Friday, January 03, 2014

Risky Bet?

Steve Zerda's 25-year career in the airline industry followed a
predictable flight path until, in 2010, he encountered a racehorse
called Turbulent Descent. The horse's owners were selling stakes to
investors -- while keeping a majority interest -- and the avid racing
fan decided to buy in.

"What I saw was a unique business model, where the owner could
spread the risk," says Zerda. "And I could participate, without spending
a fortune."

A director overseeing aircraft-component maintenance at Alaska
Airlines, Zerda had already decided to take early retirement later that
year. His investment in Turbulent Descent gave him an idea for a new
career: Buy yearlings, train them to run, then sell partnerships. After
consulting trainers -- and confirming there were few syndicates for
small-scale investors in Seattle -- he wrote a business plan. His first
acquisition as Z Thoroughbred Racing was a colt called Harbor Wind for
$10,000. (With purses at the nearby track capped at $100,000, he didn't
want to be saddled with costly horses.) He then set to work revving up
interest via word-of-mouth and a website, soliciting investors to buy
stakes of at least 5%. The money he raises helps fund grooming,
training, and care, which runs more than $25,000 a year per animal. With
such high overhead, showing a profit requires winning races and, in the
process, making horses appealing to breeders.

The risk is great, of course -- "you can buy any dumpy horse and
lose your shirt fast," Zerda says -- but so is the potential reward.
Harbor Wind raced 18 times in three years, earning over $50,000.
Turbulent Descent won $900,000 before being sold for 12 times his
original price. Today, Zerda owns six horses and has a 10% stake in
another. Thanks to winning purses plus proceeds from three sales, Z
Thoroughbred made a $45,000 profit last year. "I seem to be able to
locate good value," says Zerda, who reinvested the earnings. "And I have
a good time doing it."

BY THE NUMBERS

$50,000: Capital Zerda used to launch the businessHe determined
that this amount -- from a deferred bonus he got when leaving his job --
would allow him to buy a horse a year for the first few years before he
could bring in investors. (He has since sold 19 partnerships, with
stakes from 5% to 20%.)

5 years : Period before quitting that he power-savedAs a result,
he and his wife, Lisa, a director for a health insurer, have nearly
$750,000 for retirement. The couple, who have two kids attending state
colleges and a 15-year-old at home, are able to live on Steve's pension
and Lisa's salary.

100%: Earnings he'll reinvest for the next few yearsZerda plans
to forgo a salary -- he used to make $120,000 -- to grow the business.
He'll continue buying yearlings, with hopes of selling them when they
are around age 5, for three to five times what he paid. "Horses tend to
retire once they've made $1 million," he says. "I'd like to position
myself to follow that example."